Quarterly bulletin 2015 ||| by CentralBankCuracao

QUARTERLY BULLETIN 2015 - III

CENTRALE BANK VAN CURAÇAO EN SINT MAARTEN

Centrale Bank van Curaçao en Sint Maarten QUARTERLY BULLETIN 2015-III

©Centrale Bank van Curaçao en Sint Maarten January 2016

Simon Bolivar Plein 1 Willemstad, Curaçao Phone: (599 9) 434-5500 Fax: (599 9) 461-5004 E-mail: info@centralbank.cw

CONTENT

Report of the President

International Economic Developments

III

General Economic Developments

Monetary Developments

Commercial Banking Sector Developments

I REPORT OF THE PRESIDENT

Global economic growth remained subdued during the third quarter of 2015, reflecting a modest recovery in the advanced economies and a slowdown in the emerging and developing economies. Meanwhile, global financial market volatility increased because of concerns among investors about the global growth prospects and uncertainty about the implementation of a new exchange rate regime in China. Global inflationary pressures eased further on the back of a marked decline in crude oil prices, due mainly to excess supply.

Dr. E. D. Tromp, President

In the monetary union, economic developments differed between Curaçao and Sint Maarten. While Curaçao recorded a modest improvement of 0.3% in real output, Sint Maarten’s economy contracted by 0.3% in real terms in the third quarter of 2015. In addition, inflation dropped in both countries, reflecting primarily the impact of lower international oil prices. In Curaçao, the inflation rate fell from 2.7% in the third quarter of 2014 to -0.2% in the third quarter of 2015. Meanwhile, Sint Maarten’s inflation remained flat at 0.0%, down from the 1.9% recorded a year earlier. Curaçao’s modest real economic growth during the third quarter of 2015 stemmed solely from an increase in public demand. Both government consumption and investment contributed to the increase in public demand. Consumption rose because of a

larger outlay on goods and services, while investment increased as a result of the construction activities of the new hospital and the upgrading of Curacao’s road infrastructure. Real GDP growth was dampened, however, by a decline in private demand due to a fall in private consumption offsetting the growth in investments. Furthermore, net foreign demand dropped, as the export of goods and services declined at a faster pace than imports. An analysis by sector reveals that 2015’s third quarter GDP growth can be ascribed primarily to the construction, manufacturing, and transport, storage, & communication sectors. Real output in the construction sector expanded because of the increase in private and public investments. Meanwhile, real value added growth at the Isla refinery and more ship repair activities led to the expansion in the manufacturing sector. The transport, storage, & communication sector performed well because both air transportation and harbor activities rose. Airport-related activities grew, reflected by an increase in passenger traffic and the number of commercial landings. Meanwhile, the harbor recorded a growth in the number of ships piloted into the port, oil storage, and cargo movements. Growth weakened in the restaurants & hotels sector as a result of a slowdown in stay-over tourism combined with a decline in cruise tourism. The development in cruise tourism corresponded with the decline in the number of cruise calls in the third quarter of 2015. Meanwhile, stay-over tourism rose at a slower pace compared to a year earlier because the increase in the North American, European, and Caribbean markets was mitigated by a contraction in the South American market.

In contrast, real value added contracted in the wholesale & retail trade, financial intermediation, and utilities sectors. The negative outcome in the wholesale & retail trade sector resulted from lower domestic spending and fewer activities at the free zone, mitigated by an increase in tourism spending. The activities in the financial intermediation sector dropped because of negative contributions of both the domestic and international banking sectors. The poor results in the utilities sector reflected a decline in both electricity and water production. On the fiscal front, the government of Curaçao recorded a budget surplus of NAf.17.1 million in the third quarter of 2015, a turnaround compared to the NAf.0.4 million deficit registered in the third quarter of 2014. The improved fiscal situation was driven by an increase in revenues, mitigated by a growth in expenditures. Government revenues rose as a result of increases in both tax and nontax proceeds. The rise in tax receipts was sustained by increases in property taxes, profit tax, and import duties, mitigated by a drop in wages and sales tax earnings. Meanwhile, the increase in nontax revenues was supported primarily by the inflow of funds related to the tax arrangement of the Kingdom (BRK). Higher disbursements on transfers & subsidies combined with more outlays on goods & services caused the rise in government expenditures. This rise was moderated, however, by a decline in wages & salaries expenditures. As was the case during the previous two quarters, Sint Maarten’s third-quarter real GDP growth estimate should be interpreted with caution because data on stay-over arrivals were not available. The Bank de-

rived the stay-over tourism performance in the third quarter of 2015 from the average hotel occupancy rate data. According to the Bankâ&#x20AC;&#x2122;s estimates, Sint Maartenâ&#x20AC;&#x2122;s third-quarter contraction was attributable to a decline in both domestic demand and net foreign demand. The negative contribution of net foreign demand to real GDP growth was the result of exports dropping faster than imports. The decrease in domestic demand was related to lower public demand, partly offset by an increase in private demand. Public demand dropped because both public consumption and investment contracted. Meanwhile, private demand rose as a result of an increase in private investment, while consumer spending dropped. The available sectoral data reveal that real output in Sint Maarten contracted because the increase in the restaurants & hotels and utilities sectors was offset by declines in all other main sectors of the economy. Activities in the restaurants & hotels sector increased during the third quarter of 2015, albeit at a slower pace compared to the third quarter of 2014, because of a growth in stay-over tourism as reflected by a higher hotel occupancy rate. However, cruise tourism was down in line with the decline in the number of cruise ships that visited the port of Philipsburg. In the utilities sector, growth was driven by an increase in both electricity and water production. By contrast, the wholesale & retail trade sector recorded a contraction because of the decline in domestic spending and the slowdown in tourism growth. The poor performance of the transport, storage, & communication sector was the result of a decline in harbor activities as fewer ships, particularly freighters and cruise ships,

visited Sint Maarten. However, container movements rose and airport-related activities increased in line with the rise in the number of stay-over arrivals. The construction sector also put a drag on real GDP growth due to the decline in public investment, while the negative outcome in the manufacturing sector was caused by a drop in yacht repair activities. Real value added dropped in the financial intermediation sector as well because the domestic commercial banks generated less net interest income and fees & other income during the September-quarter of 2015. In the public finances area, Sint Maarten continued to face budgetary woes during the third quarter of 2015 reflecting primarily the sizeable arrears to the Social & Health Insurances (SZV) and the General Pension Fund (APS). Consequently, based on the recommendations of the Board of Financial Supervision (CFT), the Kingdom Council of Ministers gave the government of Sint Maarten an instruction on September 4, 2015, to settle these arrears. The instruction suggested that Sint Maarten also take measures to compensate for the deficits incurred between 2010 and 2014 and amend the 2015 budget to include all costs related to the old age pension fund (AOV) and the health care system. Finally, the pension and health care systems must be reformed to make them financially sustainable and the already agreed-upon measures to reduce the costs of these systems must be implemented urgently. In the case of Sint Maarten, one of the main lessons of the past five years is that to achieve sustainable public finances, the government will have to structurally increase its revenues. In particular, increasing tax revenues is imperative for Sint

Maarten to be able to cover its expenditures. Otherwise, the country will remain in a vicious circle of unbalanced budgets and increasing arrears. According to preliminary data and estimates of the Bank, the current account deficit on the balance of payments widened during the third quarter of 2015 compared to 2014’s third quarter as a result of a worsening of the net export of goods and services and the income balance. By contrast, net current transfers into the monetary union rose, mitigating the increase in the current account deficit. The contraction in the net export of goods and services was ascribable to a decline in exports that exceeded the lower import bill. Exports dropped as a result of lower revenues from bunkering activities and lower re-exports by the free-zone companies in Curaçao. In addition, foreign exchange receipts from tourism, particularly cruise tourism, were down in both Curaçao and Sint Maarten. Meanwhile, oil imports shrank in both countries, reflecting the sharp decline in international oil prices. Furthermore, merchandise imports by the wholesale & retail trade sector in the monetary union dropped because of a decline in domestic spending. In Curaçao, merchandise imports by the free-zone companies also contracted as a result of the continued decline in re-exports by the sector. The income balance deteriorated during the July–September period of 2015 due to a decline in net portfolio investment income. Meanwhile, the gain on the current transfers balance was primarily the result of a drop in current transfers paid to abroad, combined with an increase in current transfers received from abroad. Gross official reserves declined during the third quarter of 2015, as the external financing

and capital transfers were insufficient to cover the current account deficit. The money supply contracted in the third quarter of 2015 as a result of a decline in the net foreign assets of the banking system dampened by an increase in net domestic assets. The decline in net foreign assets was related to the balance of payments deficit. Meanwhile, net domestic assets increased as a result of a drawdown of deposits with the banking system by the governments of Curaçao and Sint Maarten complemented by a rise in memorandum balance sheet items. However, the increase in net domestic assets was mitigated by a drop in lending to the private sector during the September quarter of 2015. The drop in lending reflected a decline in private sector loans in Curacao, combined with an increase in Sint Maarten. The Bank continued its efforts to mop up part of the excess liquidity in the banking system by offering more certificates of deposits (CDs) at higher interest rates during its auctions in the September quarter of 2015. As a result, the amount of outstanding CDs increased. Meanwhile, the reserve requirement percentage was left unchanged at 18.00%. Despite considerably lower international fuel prices that resulted in reduced inflationary pressures, growth remained modest in Curaçao and Sint Maarten. In particular, the effects of the lower inflationary pressures on private spending seemed to remain contained. Our economies have not realized a higher growth path because the implementation of structural reforms to improve our investment climate have not been given the needed attention on the national policy agendas.

Therefore, both countries need to expand their policy agendas with measures aimed at improving our competitiveness in the medium and long term by focusing on improving educational attainment, addressing skill mismatches in the labor market, and enhancing productivity. These measures also should be reflected in the government budgets, which seem to have focused primarily on meeting the conditions of financial supervision. Hence, ways should be explored to include growthoriented policies, while maintaining a balanced current budget.

E.D. Tromp President

II INTERNATIONAL ECONOMIC DEVELOPMENTS THE UNITED STATES The U.S. economy expanded in real terms by 2.2% during the third quarter of 2015, a slight deceleration in the year-on-year growth compared to the 2.4% growth in the third quarter of 2014 (see Table 1). The expansion in real output was backed by higher domestic demand, as net foreign demand contracted.

ernments mitigated by a decline in federal government spending. Contrary to domestic demand, net foreign demand contributed negatively to real output growth because exports increased at a slower pace than imports. The U.S. unemployment rate dropped to 5.2% in the third quarter of 2015 from

Table 1 Economic indicators of the United States 2014-III

2015-III

Real GDP (% change)

2.4

2.2

Consumer prices (%)

1.8

0.1

Unemployment rate (%)

6.1

5.2

Sources: US Bureau of Economic Analysis and US Bureau of Labor Statistics.

The increase in domestic demand was attributable to both the private and public sectors. Private demand went up because of an increase in consumer spending and higher investments. Consumers spent more on durable goods, such as recreational goods and vehicles, during the third quarter of 2015, supported by improved consumer confidence and higher disposable income, among other things, the result of lower fuel prices. Private investments increased mainly as a result of a rise in residential investments. Furthermore, public demand expanded because of higher spending by state and local gov-

6.1% in the third quarter of 2014. This improvement was attributable mainly to job gains in the health care and professional & business services sectors. Inflationary pressures dropped to 0.1% during the third quarter of 2015 compared to 1.8% in 2014â&#x20AC;&#x2122;s third quarter, due primarily to a significant decline in energy prices mitigated slightly by higher food prices. While the inflation rate was far below the Federal Reserveâ&#x20AC;&#x2122;s target level of 2.0%, the unemployment rate remained well below its 6.5% target. In the meantime, the fed funds rate was maintained near zero.

THE NETHERLANDS The Dutch economy recorded an increase of 1.9% during the third quarter of 2015, compared to the 1.2% real GDP growth recorded in the third quarter of 2014 (see Table 2). The real output growth was attributable to increased domestic demand mitigated by a decline in net foreign demand as imports grew faster than exports. The real GDP expansion in the Netherlands during the third quarter of 2015 was attributable to increased domestic demand. Private consumption rose as more was spent on services, such as public transport, visits to restaurants and house rent, as well as goods, such as clothing and electrical equipment. The growth in private consumption was in line with the increase in employment, the continued recovery of the Dutch housing market, and the improvement in consumer confidence compared to the third quarter of 2014. Private investment grew mainly as a result of investments in residential property. Companies also invested more in machinery and equipment, transport vehicles, installations, telecommunication, and software. The growth in private investments was consistent with higher investor confidence and increased capacity utilization. Furthermore, public demand rose, driven primarily by an increase in public consumption.

Net foreign demand dampened output growth in real terms, as imports grew at a faster pace than exports. The import growth was caused primarily by higher imports of natural gas in the third quarter of 2015 compared to the third quarter of 2014. A sectoral analysis reveals that the increase in private sector activities was attributable to the manufacturing, construction, communication, and business services sectors in particular. However, private sector growth was mitigated by a marked contraction in the agriculture and mining sectors. Furthermore, inflationary pressures continued to ease, reaching 0.8% in the third quarter of 2015 compared to 0.9% in the September quarter of 2014. The lower inflation was caused primarily by the decline in international crude oil prices mitigated by higher clothing prices and housing costs. The unemployment rate fell to 6.6% in the third quarter of 2015 compared to 7.0% in the third quarter of 2014. The lower unemployment rate was a result of the improved economic conditions in the Netherlands with more people finding employment, especially in the business services and trade, transportation, & hospitality sectors.

Table 2 Economic indicators of the Netherlands 2014-III

2015-III

Real GDP (% change)

1.2

1.9

Consumer prices (%)

0.9

0.8

Unemployment rate* (%)

7.0

6.6

Sources: Central Bureau of Statistics. * International definition.

VENEZUELA The Central Bank of Venezuela has not published data on the economic performance of Venezuela since the third quarter of 2014. However, Venezuela’s real GDP is expected to contract in 2015 between 10.0% and 5.6%, according to the forecasts of the International Monetary Fund (IMF) and Business Monitor International (BMI). The expected economic contraction is due to a decline in domestic demand and net foreign demand. Venezuela is experiencing a period of deep recession. According to projections of the IMF and BMI, domestic demand will drop significantly in 2015 as both private demand and public demand will decline. Private demand is expected to decline because of less consumption and investment compared to 2014. Private consumption will decrease mainly as a result of the high inflation, which eroded consumers’ purchasing power substantially. Private investment is expected to decline in 2015 for a number of reasons, among them, low investor sentiment, shortages of foreign currency, and the worsening business climate in the country. Meanwhile, public demand

is expected to contract in real terms largely because of lower government revenues from oil exports resulting in constraints on government spending.1 Despite the devaluation of the bolívar in February 2015 and the foreign currency restrictions that resulted in lower imports, net foreign demand is expected to contribute negatively to real output due to the further decline in oil prices causing exports to fall at a faster pace than imports. An analysis by sector indicates that the forecasted poor economic performance of Venezuela will be reflected primarily in the manufacturing, construction, communication, trade & repair services, transport & storage, and mining sectors. Venezuela’s inflation rate is estimated between 94.2% and 125.1% in 2015 by BMI. The higher inflationary pressures are mainly the result of ongoing shortages of goods and the expansion of the money supply. As a result of the recession in Venezuela, the unemployment rate is estimated to rise to 15.0% in 2015.2

Table 3 Economic indicators of Venezuela 2014

2015

Real GDP (% change)

-4.0

-10.0 to -5.6

Consumer prices (%)

62.2

94.2 to 125.1

7.0

10.4 to 15.0

Unemployment rate (%) Sources: International Monetary Fund; Reuters.

Venezuela Country Risk Report Q3 2015 (2015, September), Business Monitor International. 1

World Economic Outlook, International Monetary Fund; Country Risk Report Q4 2015 (2015, December), Business Monitor International. 2

III GENERAL ECONOMIC DEVELOPMENTS

GENERAL ECONOMIC DEVELOPMENTS IN CURAÇAO After contracting by 1.0% in the third quarter of 2014, Curaçao’s real output expanded by 0.3% in the third quarter of 2015. The slight economic expansion was attributable to an increase in domestic demand, mitigated by a drop in net foreign demand (see Table 4). At the same time, Curaçao’s inflation rate turned negative, to

-0.2%, driven mainly by a strong decline in the prices of electricity and fuel as well as a drop in water tariffs. An analysis of the expenditure side of GDP reveals that the slight economic growth registered in the September quarter of 2015 stemmed mainly from an increase in government spending. Government spending increased because of more con-

Table 4 GDP by expenditure of Curaçao* (real percentage changes) 2014-III

2015-III

Domestic expenditure, of which:

-0.9

0.4

Private sector

-2.7

-0.3

Investment

-0.7

0.2

Consumption

-2.0

-0.5

Government sector

1.8

0.6

Investment

1.7

0.3

Consumption

0.2

0.3

Changes in inventory

-0.2

0.0

0.1

-0.1

Export of goods and services

0.5

-0.6

Import of goods and services

0.4

-0.5

-1.0

0.3

Foreign net expenditure, of which:

GDP Source: Estimates by the Centrale Bank van Curaçao en Sint Maarten. * Expenditure categories data are weighted contributors to GDP growth.

sumption and investments. The growth in government consumption resulted from higher outlays on goods and services, while government investments increased because of the construction activities at the new hospital and the upgrading of Curaçao’s road infrastructure. Private spending, on the other hand, contracted because the drop in consumption exceeded the growth in investments. Consumer spending fell as reflected by lower sales tax revenues collected by the government and fewer merchandise imports by the wholesale & retail trade sector. In contrast, private investment spending rose as a result of some large investment projects, among them the upgrading of Curaçao’s international airport, the Boulevard at Piscadera Bay, and some housing projects. Net foreign demand made a negative contribution to GDP growth because the export of goods and services dropped at a faster pace than the imports. Exports declined mainly as a result of lower reexports by the free-zone companies and fewer bunkering activities, while the decrease in imports was primarily the result of a decline in international oil prices and lower merchandise imports by the freezone companies.

DOMESTIC PRODUCTION An analysis of the production side of GDP indicates that the slight GDP growth posted in the third quarter of 2015 can be ascribed primarily to the construction, manufacturing, and transport, storage, & communication sectors (see Table 5). Following a contraction in the third quarter of 2014, the construction and manufactur-

ing sectors contributed positively to GDP growth during the third quarter of 2015 (4.3% and 1.9%, respectively). Real output in the construction sector expanded because of increases in both private and public investments. Meanwhile, activities in the manufacturing sector grew because of an increase in ship repair activities as reflected by the number of man hours sold (8.4%), in line with more ships repaired (105.9%). In addition, real value added of the Isla refinery rose, reflecting an increase in the payroll and contract payments by the refinery. During the September quarter of 2015, output growth in the transport, storage, & communication sector expanded (0.6%), attributable to increased activities at both the airport and the harbor. Growth in airport-related activities was driven by increases in total passenger traffic and the number of commercial landings. The rise in harbor activities resulted from more cargo movements, oil storage activities, and ships, notably tankers, piloted into the port of Curaçao. Compared to the third quarter of 2014 (5.8%), real value added in the restaurants & hotels sector rose at a slower pace during the third quarter of 2015 (1.4%). Stay-over tourism recorded a slowdown because the expansions in the North American, European, and Caribbean markets were offset in part by a contraction in the South American market. The North American market expanded because of an increase in the number of visitors from Canada and the United States. The European market also grew, supported by more visitors from the Netherlands and Germany. In addition, the increase in the Caribbean market was caused mainly by more visitors from

Trinidad & Tobago. Similar to the previous quarter, the South American market contracted during the September quarter of 2015, ascribable to a sharp drop in the number of Venezuelan visitors and, to a lesser extent, a decline in the number of Brazilian visitors. In line with the development in stay-over tourism, the hotel occupancy rate rose slightly from 68.0% in the third quarter of 2014 to 68.9% in the third quarter of 2015. In contrast, the number of cruise tourists dropped (-28.6%), consistent with a decline in the number of cruise

calls (-25.0%). (See Table 11 in Appendix I for more details on stay-over tourism development.) Contrary to the above, real output in the wholesale & retail trade, financial intermediation, and utilities sectors contracted during the July-September period of 2015. The poor performance of the wholesale & retail trade sector (-0.5%) was the result of less domestic spending and fewer activities at the free zone, mitigated by an increase in tourism spending. The decline in activities

Table 5 GDP by sector of Curaรงao (real percentage changes) 2014-III

2015-III

Agriculture, fishery, & mining

-4.0

3.1

Manufacturing

-0.3

1.9

Electricity, gas, & water

-0.6

-2.7

Construction

-1.6

4.3

Wholesale & retail trade

-0.5

Restaurants & hotels

5.8

1.4

Transport, storage, & communication

0.7

0.6

Financial intermediation

-1.4

-0.4

Real estate, renting, & business activity

-0.9

0.5

Other community, social, & personal services

-1.6

-0.5

Private households

-2.9

0.3

Total private sector

-0.5

0.3

Public sector

-0.1

-0.6

0.3

0.5

-1.0

0.3

Taxes minus subsidies

GDP Source: Estimates by the Centrale Bank van Curaรงao en Sint Maarten.

drop in international oil prices. Consequently, the deflation reflected primarily a strong decline in the prices of electricity and fuel, as well as a decline in water tariffs (see Graph 1).

at the free zone was consistent with a drop in the number of visitors, especially from Venezuela. Activities in the financial intermediation sector dropped as well (-0.4%), resulting from negative contributions of both the domestic and international financial services industries. The domestic financial services industry contracted because of decreases in net interest income and other fees & income earned by the domestic commercial banks. Furthermore, the international financial services industry had a negative impact due to a drop in wages & salaries and other operational expenses. The utilities sector’s performance also was disappointing (-2.7%) because of a decline in both electricity and water production.

An analysis of the developments in the Consumer Price Inflation (CPI) components for Curaçao denotes that during 2015’s third quarter, the deflation stemmed from negative contributions from the categories “Clothing & footwear” (-3.8%), “Housing” (-2.1%), and “Transport & communication” (-1.3%), similar to 2015’s second quarter. The price decrease in the “Housing” category resulted from a considerable drop in electricity prices and, to a lesser extent, a decrease in water tariffs. Consumer prices in the “Transport & communication” category also contracted, driven primarily by a decline in fuel prices. Meanwhile, the price gain in the categories “Food” (3.1%), “Beverages & tobacco” (2.6%), “Housekeeping & furnishings” (1.2%), and “Health” (0.6%) decelerated during the third quarter of 2015. Inflationary pressures in the “Food” category eased mainly because the prices of potatoes, vegetables, and fruit rose at a slower pace than a year earlier. (See Table 12A in Appendix I for more details.)

INFLATIONARY PRESSURES In the third quarter of 2015, consumer price inflation in Curaçao turned negative, dropping to -0.2%, compared to an inflation rate of 2.7% in the third quarter of 2014. The negative price development during the September quarter of 2015 was driven largely by the substantial

Graph 1 Developments in consumer prices (annual percentage change) 3.5

3.0

2.5 50

2.0 1.5

1.0

0.5

0.0 10

-0.5 -1.0

0 2013-I

2013-II Curaçao (l)

2013-III

2013-IV

2014-I

Sint Maarten (l)

2014-II

2014-III

USA (l)

2014-IV

2015-I

Netherlands (l)

2015-II

2015-III Venezuela (r)

GENERAL ECONOMIC DEVELOPMENTS IN SINT MAARTEN Sint Maarten’s real output contracted by 0.3% in the third quarter of 2015 (see Table 6), a negative turnaround compared to the 1.2% growth registered in the third quarter of 2014. The GDP contraction resulted from declines in both domestic demand and net foreign demand. The inflation rate in Sint Maarten remained flat at 0.0%, attributable mainly to the steep decline in international oil prices which offset the rise in food prices. The public sector put a drag on Sint Maarten’s GDP growth during the July-

September period of 2015 as both public investment and consumption contracted. The lower public consumption was caused by a drop in outlays on wages & salaries. Private consumption also contracted, albeit at a slower pace than in the third quarter of 2014. The contraction in private consumption was in line with less consumer credit extended by the domestic commercial banks and fewer activities in the wholesale & retail trade sector. By contrast, private investment grew, supported by projects such as the construction of the new fixed-base operator (FBO) building at the Princess Juliana International Airport and the Walter Plantz Square in Philipsburg. Despite these projects, there were

Table 6 GDP by expenditure of Sint Maarten* (real percentage changes) 2014-III

2015-III

Domestic expenditures, of which:

-1.3

-0.4

Private sector

-0.5

0.1

Investment

-0.2

0.2

Consumption

-0.3

-0.1

Government sector

-0.9

-0.5

Investment

0.8

-0.1

Consumption

-1.7

-0.4

Changes in inventory

0.1

0.2

Foreign net expenditures, of which:

2.5

-0.1

Export of goods and services

3.8

-0.8

Import of goods and services

1.4

-0.7

1.2

-0.3

GDP Source: Estimates by the Centrale Bank van Curaçao en Sint Maarten. Expenditure categories data are weighted contributors to GDP growth.

fewer activities overall in the construction sector. Net foreign demand also contributed negatively to real GDP because exports dropped at a faster pace than imports. The lower imports were due mainly to the sharp decline in international oil prices. Meanwhile, exports were down largely because of a drop in foreign exchange revenues from tourism activities.

DOMESTIC PRODUCTION Sint Maarten’s economic contraction during the September quarter of 2015 was the result of a decline in the public sector, while growth remained muted in the private sector. The negative contribution of the public sector was the result of a drop in disbursements on wages & salaries and a decline in taxes collected on products, particularly sales tax. At the sectoral level, with the exception of the utilities and restaurants & hotels sectors, most economic sectors recorded negative growth (see Table 7). However, these developments should be interpreted with caution. Because of the absence of data on stay-over arrivals by tourism market during the third quarter of 2015, the Bank based its estimates on a proxy.3 Real output in the restaurants & hotels sector rose during the third quarter of 2015 (3.6%), albeit at a slower pace than in the third quarter of 2014. The growth stemmed from an increase in stay-over tourism, mitigated by a decline in cruise tourism. The drop in the number of cruise tourists was consistent with a decline in the number of cruise calls. Stay-over tourThe change in the hotel occupancy rate was used as a proxy for the tourism sector. 3

ism is estimated to have increased in line with the higher hotel occupancy rate in the third quarter of 2015 compared to the third quarter of 2014. Furthermore, activities in the utilities sector rose (1.0%) as a result of increases in both electricity and water production. After positive growth in 2014’s third quarter, the wholesale & retail trade and transport, storage, & communication sectors registered a turnaround in real value added in the third quarter of 2015. Real value added in the wholesale & retail trade sector contracted (-0.6%) because of fewer activities overall in the tourism sector and the contraction in domestic demand. The decline in activities in the transport, storage, & communication sector (-0.2%) was driven primarily by a contraction in activities at the harbor. The decline in harbor activities was reflected by fewer ships piloted into the port of Sint Maarten, notably freighters and cruise ships. On the other hand, container movements increased. Also, air transportation activities contracted. In contrast, airport-related activities grew in line with the estimated increase in stay-over tourism. Similar to the third quarter of 2014, activities in the construction sector fell during the third quarter of 2015 (-0.6%), albeit at a slower pace because of a decline in public investments. The contraction in the manufacturing sector (-1.0%) was caused by a decline in yacht repair activities, the result of fewer yachts in port because of increased storm activity in the July-September period of 2015. Meanwhile, the financial intermediation sector also contributed negatively to Sint Maarten’s GDP in 2015’s third quarter.

Real output contracted (-1.1%), reflected by a decrease in both net interest income and other fees and income earned by the domestic commercial banks.

INFLATIONARY PRESSURES Price developments on an annual quarterly basis indicate that Sint Maarten’s inflation rate remained flat at 0.0% in the third quarter of 2015, meaning that the general price level

remained the same as in the third quarter of 2014. The stagnation in inflationary pressures was influenced mainly by lower international oil prices which offset higher food prices. An analysis of the development in the CPI components shows deflation in the categories “Transport & communication” (-2.4%), due mainly to the reduction in domestic gasoline prices, “Beverages & tobacco” (-0.4%), “Housing” (-2.3%), and “Recreation & education” (-1.5%). The decrease

Table 7 GDP by sector of Sint Maarten (real percentage changes) 2014-III

2015-III

0.0

Manufacturing

-6.9

-1.0

Electricity, gas, & water

-2.6

1.0

Construction

-1.3

-0.6

Wholesale & retail trade

3.6

-0.6

Restaurants & hotels

6.2

3.6

Transport, storage, & communication

3.7

-0.2

Financial intermediation

0.0

-1.1

Real estate, renting, & business activities

1.6

-0.3

-1.6

-0.2

Private households

4.7

-0.5

Total private sector

1.7

0.0

Public sector

-0.2

Taxes minus subsidies

-0.3

-0.1

1.2

-0.3

Agriculture, fishery, & mining

Other community, social, & personal services

GDP Source: Estimates by the Centrale Bank van Curaçao en Sint Maarten.

in prices in the “Housing” category was attributable primarily to lower electricity prices. Meanwhile, prices remained flat in the category “Clothing & footwear” (0.0%). By contrast, prices accelerated in the categories “Food” (7.0%), “Health” (4.4%), and “Housekeeping & furnishings” (3.3%). The acceleration in the “Food” category was related primarily to higher price gains in the subcategories fish & meat, potatoes, vegetables & fruits, and dairy products. (See Table 12B in Appendix I.)

PUBLIC FINANCES PUBLIC FINANCES OF CURAÇAO Following a budget deficit of NAf.0.4 million in 2014’s third quarter, the government of Curaçao recorded a budget surplus of NAf.17.1 million in the third quarter of 2015. This budget surplus was caused by an increase in government revenues, mitigated by a growth in government expenditures. Government revenues went up by NAf.49.1 million due to increases in tax revenues as well as nontax revenues. The increase in nontax revenues was most pronounced and caused by a NAf.26.9 million inflow of funds related to the tax arrangement of the Kingdom (BRK).4 Furthermore, the rise in tax proceeds resulted from more property taxes, profit tax, and import duties collected mitigated by a drop in wage tax and sales tax proceeds. Property taxes increased because the assessments of the new real estate tax5 introduced in 2014 started to be col-

lected. Government expenditures rose by NAf.31.6 million because of larger outlays on transfers & subsidies--particularly transfers to organizations subsidized by the government-- and on goods & services, mitigated by smaller outlays on wages & salaries. (See Tables 13A and 13B in Appendix I for the budgetary overview and the overview of selected tax revenues for the government of Curaçao.) The government of Curaçao used its budget surplus from the September quarter of 2015 together with its deposits at the commercial banks to reduce outstanding liabilities, particularly towards the social security bank, SVB, and the public pension fund, APC (see Table 8). The drawdown of deposits with the commercial banks also explains the monetary financing in 2015’s third quarter.

Public sector debt The total outstanding public debt of Curaçao contracted by NAf.27.1 million to NAf.2,392.2 million due to a decline in the domestic debt component. The government reduced its debt by paying off outstanding liabilities with the SVB and the APC. The foreign debt component remained practically unchanged during the third quarter of 2015. As a result, the public debt to GDP ratio estimated for Curaçao dropped slightly to 41.9% at the end of September 2015. (See Table 13C in Appendix I for an overview.)

As part of the BRK, all withholding tax collected on dividends paid by Dutch companies to their parent companies in Curaçao is transferred to the government of Curaçao. 4

Onroerende Zaakbelasting.

Table 8 Financing of the budget balance of Curaรงao (in millions NAf.) 2014-III

2015-III

Monetary financing

124.8

22.4

Central bank

164.3

-7.5

Commercial banks

-39.5

29.9

-124.4

-39.5

0.0

-124.4

-39.5

-0.4

17.1

Nonmonetary financing Government securities with nonbanks Other Cash balance

PUBLIC FINANCES OF SINT MAARTEN Based on the recommendations of the Board of Financial Supervision (CFT), the government of Sint Maarten received an instruction from the Kingdom Council of Ministers on September 4, 2015, to settle its outstanding arrears with the Social & Health Insurances (SZV) and the General Pension Fund (APS), in particular. In addition, Sint Maarten was told to take measures to compensate for the deficits incurred between 2010 and 2014 and amend the 2015 budget to include all costs related to the old age pension fund (AOV) and the health care system. Finally, the pension and health care systems need to be reformed to make them financially sustainable and the already agreed-upon measures to reduce the costs of these systems must be implemented urgently. As long as the measures indicated in the instruction are not implemented, the government cannot borrow on the capital market to finance capital expenditures. The budget balance of Sint Maarten showed a slight improvement of NAf.1.4 million in the third quarter of 2015 compared to the third quarter of 2014. This

improvement was caused by a rise in government revenues (NAf.3.6 million) mitigated by an increase in government expenditures (NAf.2.2 million). Government revenues rose primarily because of higher tax proceeds, caused particularly by more wage tax and property transfer tax collected. The increase in the proceeds from the wage tax was largely the result of the indexation of salaries that translated into higher tax payable. Furthermore, car rental and time share taxes contributed positively to the increase in tax revenues. However, the growth in government revenues was mitigated by a decline in license fees collected, particularly business license and building permit fees. The decline in building permit fees reflected fewer private construction projects due to the economic slowdown and a decline in public construction projects because of borrowing restrictions imposed on the government of Sint Maarten. Meanwhile, government expenditures increased supported by larger outlays on subsidies and social security transfers, offset partly by lower disbursements on wages & salaries and goods & services. (See Tables 13D and 13E in Appendix I for an overview.)

Table 9 Financing of the budget balance of Sint Maarten (in millions NAf.) 2014-III

2015-III

19.8

15.1

2.4

3.1

Commercial banks

17.4

12.0

Nonmonetary financing

-2.8

0.6

0.0

-2.8

0.6

-17.1

-15.7

Monetary financing Central bank

Government securities with nonbanks Other Cash balance

The government of Sint Maarten financed its budget deficit largely by drawing down its deposits at the Bank and the commercial banks, resulting in a monetary expansion of NAf.15.1 million during the third quarter of 2015 (see Table 9).

Sint Maarten’s domestic debt dropped because the government reduced part of its arrears towards the Social & Health Insurances (SZV). Also, the government reached an agreement with the SZV on a downward adjustment of some disputed arrears, resulting in a substantial drop in the government’s debt towards the SZV. As a result, Sint Maarten’s debt to GDP ratio dropped to 34.8% at the end of the third quarter of 2015. (See Table 13F in Appendix I for an overview.)

Public sector debt Sint Maarten’s public debt dropped by NAf.25.1 million during the third quarter of 2015 because of a decline in the domestic debt component. Meanwhile, the foreign debt component remained unchanged. Box:

Sint Maarten’s budgetary struggles lead to Kingdom Council of Ministers instruction On September 8, 2015, the Kingdom Council of Ministers (the Council) in The Hague officially instructed the government of Sint Maarten to amend its 2015 budget to comply with the norms stipulated in article 15 of the Kingdom Act Financial Supervision Curaçao and Sint Maarten (the Kingdom Act). The instruction was issued following the advice of the College Financieel Toezicht (CFT), the independent committee in charge of monitoring the finances of the governments of Curaçao and Sint

Maarten. Pursuant to article 13 of the Kingdom Act, the CFT may advise the Council to instruct either country’s government to amend its budget when the CFT concludes that the budgetary norms stipulated in article 15 of the Kingdom Act are not being adhered to despite several prior warnings and advice to the country’s government. These compulsory norms include a balanced budget requirement for the current fiscal year, a multiannual scope, and com-

Box continued... pliance with an interest burden rule, which establishes a loan ceiling. The main aim of these norms is to prevent an uncontrolled accumulation of new government debt. The Netherlands and the representatives of the island territories of the former Netherlands Antilles agreed on the adoption of these norms during the constitutional restructuring talks as a prerequisite to the start of the debt relief program implemented between 2009 and 2010. In the months preceding the instruction, the government of Sint Maarten amended its 2015 budget by an additional NAf.25 million, from NAf.445 million to NAf.470 million, which was rejected by the CFT. The Council followed the CFT’s advice and issued an instruction ordering the Sint Maarten government to compensate the accumulated deficits of NAf.60 million from previous years as well as settle the payment arrears of NAf.189 million in the 2015-2018 budgets. The Sint Maarten government has a large debt to the Social & Health Insurance (SZV) and the General Pension Fund (APS) as well as to other third parties. The Council also instructed the Sint Maarten government to include all costs related to the Old Age Pension Fund (AOV) and the health care system. Reforms to make the pension and health care systems financially sustainable as well as measures to reduce the costs of maintaining these systems should be implemented urgently, according to the instruction. Until these measures are implemented, Sint Maarten cannot borrow to finance muchneeded capital investments. It became apparent that unless measures were taken soon, the next several years would be concluded with similar or even higher deficits. Therefore, the CFT con-

sulted intensively with the government to help bring the budget back in line with the compulsory norms. However, as the months lapsed, the CFT concluded that the progress being made by the government of Sint Maarten was not sufficient or quick enough to balance the 2015 budget and the multiannual projections before the end of 2015. Consequently, the CFT advised the Council to give an instruction to Sint Maarten’s government to adjust its 2015 budget. Pending a definite decision on the instruction decree, the government of Sint Maarten wanted a temporary suspension of the September 8 instruction, in particular the section forbidding Sint Maarten from acquiring loans for capital investments as long as the country does not comply with the conditions set in the instruction decree. According to the government, this aspect of the instruction hinders much-needed investments in the Tax Department and the Pointe Blanche prison, among other things. The government of Sint Maarten filed for a temporary suspension of the instruction with the Dutch Council of State, a constitutionally established advisory body on legislation as well as an administrative court, aimed at buying the government some more time. However, after the resignation of the Gumbs cabinet, the newly appointed finance minister canceled the appeal process before the Council of State, vowing to fully comply with the Council’s instruction. Thus, the instruction remained: Sint Maarten has to bring its 2015 budget and multiannual projections in line with article 15 of the Kingdom Act financial supervision Curaçao and Sint Maarten.

DEVELOPMENTS IN THE BALANCE OF PAYMENTS OF THE MONETARY UNION Based on the Bank’s preliminary data and estimates,6 the deficit on the current account of the balance of payments widened by NAf.16.2 million during the third quarter of 2015 compared to the third quarter of 2014. The higher deficit was primarily the result of a decline in the net export of goods and services as exports dropped at a faster pace than imports. In addition, the income balance worsened, while the net current transfers balance improved. Following an increase of NAf.89.1 million in the third quarter of 2014, gross official reserves of the monetary union shrank by NAf.25.2 million during the third quarter of 2015. Therefore, one can conclude that the external financing and net capital

transfers were not sufficient to cover the current account deficit (see Table 10).

Developments in the net exports of goods and services in Curaçao In Curaçao, the net export of goods and services is estimated to have contracted during the September quarter of 2015 as a result of a decline in exports, mitigated by lower imports. The decline in exports can be ascribed to, among other things, lower re-exports by the free-zone companies. The poor outcome at the free zone was caused primarily by the unstable situation and currency restrictions in Venezuela. Furthermore, foreign exchange earnings from bunkering activities dropped due to the marked decline in international oil prices recorded during the third quarter of 2015. In addition, foreign exchange re-

Table 10 Balance of payments summary (in millions NAf.) 2013-III

2014-III

2015-III

-420.9

-309.4

-325.6*

46.7

-89.1

25.2

55.9

-89.9

153.6

held at foreign central banks

45.5

68.1

203.3

held at foreign commercial banks

10.5

-157.9

-49.7

-9.2

0.8

-128.4

Current account

Change in gross reserves of the central bank** Foreign exchange

Other claims *

Estimate of CBCS. A minus sign implies an increase.

When all data on the balance of payments are available, a full analysis of the current, capital, and financial accounts will be made available as an appendix to this Quarterly Bulletin on the website of the CBCS. 6

ceipts from tourism dropped slightly due to the decline in cruise tourism.

Developments in the income balance and the current transfers balance

Meanwhile, the fall in imports stemmed largely from a decline in oil imports, resulting from the significant drop in international fuel prices. In addition, merchandise imports by the free-zone companies were down because of the drop in re-exports. The wholesale & retail trade sector also imported less merchandise during the third quarter of 2015, due mainly to the decline in domestic spending.

During the third quarter of 2015, the income balance is estimated to have worsened by NAf.14.1 million due mainly to lower net interest income from portfolio investments. By contrast, the current transfers balance improved by NAf.27.7 million due to a decline in current transfers paid to abroad, combined with an increase in current transfers received from abroad.

Developments in the net exports of goods and services in Sint Maarten In Sint Maarten, the net export of goods and services also was down because the decline in exports surpassed the drop in imports. Exports declined as a result of the lower foreign exchange revenues from tourism. According to the Bankâ&#x20AC;&#x2122;s estimates, foreign exchange receipts from cruise tourism contracted, in line with fewer cruise tourists visiting Sint Maarten. In contrast, foreign exchange earnings from stay-over tourism increased, albeit the pace of growth was less pronounced in the third quarter of 2015 than in the third quarter of 2014. Sint Maartenâ&#x20AC;&#x2122;s import bill shrank on the back of lower oil imports and a decline in non-oil merchandise imports. The lower oil imports are attributable to the decline in international oil prices. Meanwhile, the decline in non-oil merchandise imports reflected primarily fewer imports by the wholesale & retail trade sector caused by the contraction in domestic demand.

APPENDIX I Table 11 Stay-over tourism development by islandabc Curaรงao 2014-III

Sint Maarten 2015-III

2014-III

2015-III

North America, of which:

-18.2

(-2.2)

19.5

(2.7)

6.0

(3.3)

U.S.A.

-18.9

(-2.1)

10.3

(1.3)

7.3

(3.6)

Europe, of which:

7.3

(2.9)

8.5

(3.6)

2.1

(0.5)

The Netherlands

7.5

(2.3)

9.9

(3.2)

0.7

(0.0)

17.5

(6.2)

-12.6

(-3.8)

0.9

(0.0)

Venezuela

26.2

(6.3)

-18.5

(-3.6)

-5.7

(0.0)

Colombia

23.9

(0.6)

27.8

(0.9)

Surinam

-2.1

(-0.1)

15.1

(0.5)

Caribbean, of which:

-10.4

(-0.9)

4.8

(0.4)

11.6

(0.9)

Dominican Republic

-4.9

(0.0)

-12.1

(-0.1)

-3.7

(0.0)

6.1

1.4

5.2

0.9

South & Central America, of which:

Total

Source: Curacao Tourist Board (CTB) and St. Maarten Tourist Bureau. a Percentage change. b The weighted growth rates are depicted between brackets. c 2015 figures for Sint Maarten are estimates of the CBCS as no data was made available by the authorities. The estimates are based on hotel occupancy rates.

Table 12A Development in the consumer price index of Curaรงaoa 2014-III

2014-IV

2015-I

2015-II

2015-III

5.2

7.2

6.4

4.3

3.1

Beverages & tobacco

17.0

12.0

7.8

3.8

2.6

Clothing & footwear

5.2

5.0

4.1

-0.9

-3.8

Housing

2.2

-1.9

-5.3

-3.5

-2.1

Housekeeping & furnishings

1.4

1.7

1.2

Health

1.2

3.3

3.0

0.6

Transport & communication

0.9

0.6

-1.6

-4.1

-1.3

Recreation & education

2.0

2.8

2.7

1.8

0.7

Other

2.2

3.4

2.9

2.5

1.3

General inflation rate

2.7

1.9

0.1

-0.6

-0.2

Food

Source: Central Bureau of Statistics of Curaรงao. a Annual quarterly percentage change.

Table 12B Development in the consumer price index of Sint Maartena 2014-III

2014-IV

2015-I

2015-II

2015-III

Food

6.1

7.0

7.2

7.7

7.0

Beverages & tobacco

2.9

0.9

0.1

-0.4

Clothing & footwear

0.4

1.9

1.6

1.0

0.0

Housing

2.5

1.0

-0.7

-1.9

-2.3

Housekeeping & furnishings

1.9

1.3

2.3

3.4

3.3

Health

4.4

5.2

5.0

3.2

4.4

Transport & communication

-1.2

-2.2

-0.5

-3.7

-2.4

Recreation & education

-0.3

0.1

-0.2

-1.5

Other

0.7

1.5

1.9

1.5

0.0

General inflation rate

1.9

1.5

1.2

0.2

0.0

Source: Department of Statistics of Sint Maarten. a Annual quarterly percentage change.

Table 13A Budgetary overview of Curaรงao (in millions NAf.) 2013-III

2014-III

2015-III

Revenues

369.2

365.4

414.5

Tax revenues, of which:

320.4

333.6

353.1

129.3

156.1

155.5

13.2

8.0

23.9

139.7

128.6

130.4

36.8

38.7

41.4

48.9

31.8

61.4

Expenditures

319.8

365.8

397.4

Wages and salaries

147.4

166.7

163.2

Goods and services

32.6

46.5

52.6

126.1

139.5

166.1

0.0

1.1

2.9

Other expenditures

13.6

12.0

12.6

Budget balance

49.4

-0.4

17.1

Taxes on income and profits Taxes on property Taxes on goods and services Taxes on international trade and transactions Nontax and other revenues

Transfers and subsidies Interest payments

Table 13B Overview of selected tax revenues of Curaรงao (in millions NAf.) 2013-III

2014-III

2015-III

129.3

156.1

155.5

Profit tax

19.4

22.1

30.8

Wage tax

105.6

128.2

121.8

13.2

8.0

23.9

Land tax/OZB1

8.4

4.0

13.6

Property transfer tax

4.2

3.5

4.9

139.7

128.6

130.4

Sales tax

99.8

98.1

95.0

Excises, of which:

29.9

19.8

22.5

22.0

11.0

11.6

5.9

5.5

5.3

Taxes on international trade and transactions, of which:

36.8

38.7

41.4

Import duties

36.7

38.5

41.4

Taxes on income and profits, of which:

Taxes on property, of which:

Taxes on goods and services, of which:

Excise on gasoline Motor vehicle tax

OZB (Onroerende Zaakbelasting) is a real estate tax that replaced the land tax as of January 1, 2014 and was implemented in May 2014. 1

Table 13C Total outstanding public debt1 of Curaรงao (in millions NAf.) 2014-III

2014-IV

2015-I

2015-II

2015-III

190.9

217.3

215.8

214.8

188.1

Long-term securities

18.4

Short-term securities

-.-

APC

33.5

50.8

39.8

55.4

49.0

SVB

33.1

35.8

59.5

36.2

Foreign debt

1,958.6

1,959.6

2,210.4

2,204.3

2,204.1

Total debt

2,149.5

2,177.0

2,426.2

2,419.1

2,392.2

(% of GDP)

38.0

38.5

42.8

42.5

41.9

Domestic debt of which:

Debt figures do not comprise the entire collective sector.

Table 13D Budgetary overview of Sint Maarten (in millions NAf.) 2013-III

2014-III

2015-III

123.2

92.9

96.5

Tax revenues

72.1

73.6

79.0

Concessions and fees

17.4

11.2

10.0

5.0

6.4

3.5

28.7

1.7

3.9

144.6

110.0

112.2

Wages and salaries

48.4

48.8

45.4

Goods and services

36.7

29.7

27.3

Subsidies

16.8

22.2

26.7

Social security

37.6

2.2

5.2

Interest payments

2.7

4.2

3.4

Other expenditures

2.4

2.9

4.2

-21.4

-17.1

-15.7

Revenues

Licenses Other revenues

Expenditures

Budget balance

Table 13E Overview of selected tax revenues of Sint Maarten (in millions NAf.) 2013-III

2014-III

2015-III

32.1

36.4

40.4

Profit tax

2.4

1.7

1.8

Wage tax

34.2

34.5

38.5

Taxes on property, of which:

2.5

3.3

4.1

Land tax

0.8

0.9

1.0

Property transfer tax

1.7

2.3

3.1

Taxes on goods and services, of which:

45.4

41.9

42.4

Turnover tax

31.2

29.7

Vehicle tax

0.2

Excise on gasoline

4.0

2.2

2.9

Taxes on income and profits, of which:

Table 13F Total outstanding public debt of Sint Maarten (in millions NAf.) 2014-III

2014-IV

2015-I

2015-II

2015-III

191.9

196.6

197.3

199.2

174.2

Long-term securities

0.1

Short-term securities

APS

69.9

51.6

51.7

SZV

60.5

87.0

105.5

73.7

Foreign debt

470.9

501.3

Total debt

662.9

697.9

698.5

700.5

675.4

(% of GDP)

35.2

36.8

36.6

36.4

34.8

Domestic debt of which:

IV MONETARY DEVELOPMENTS

MONETARY POLICY During the third quarter of 2015, monetary policy continued to be directed at tightening the surplus in the money market by auctioning more Certificates of Deposit7 (CDs) at higher interest rates to increase their attractiveness. As a result, the amount of outstanding CDs increased from NAf.124.8 million at the end of the second quarter to NAf.168.0 million at the end of the third quarter of 2015. By contrast, the percentage of the reserve requirement remained unchanged at 18.00% during the third quarter. Due to a decline in the adjusted domestic debt of the commercial banks, i.e., the base on which the reserve requirement is calculated, the outstanding amount fell by NAf.5.5 million (-0.5%). The Bank’s official interest rate, the pledging rate, was left unchanged at 1.00% throughout the third quarter of 2015.

MONETARY BASE The monetary base, M0, is a measure of the Bank’s monetary liabilities and consists of currency in circulation and the commercial banks’ current account balances with the Bank. Growth in the monetary base entails an injection of liquidity into the economy that may stimulate credit expansion that

could ultimately result in pressures on the external reserves. Following a NAf.60.2 million (7.0%) contraction in the second quarter of 2015, the monetary base dropped by NAf.5.8 million (0.7%), during the third quarter (see Table 14 in Appendix II). The third quarter contraction resulted from a decline of NAf.12.4 million (2.9%) in currency in circulation, dampened by a NAf.6.6 million (1.7%) increase in the commercial banks’ balances with the Bank. Graph 2 shows that the development in M0 was caused almost entirely by the movements in the commercial banks’ balances; currency in circulation remained practically stable. The current account balances of the commercial banks reached a peak of NAf.499.0 million in April 2015, but fell in the subsequent months. The rate of growth of M0 on an annual basis slowed substantially, from 53.1% in March to 29.1% in June to 12.3% in September 2015. Changes in the monetary base can be explained by movements in the Bank’s assets and remaining liabilities. Table 14 in Appendix II displays the counterparts to the monetary base. An increase in the Bank’s assets contributes to growth in M0, and a rise in its remaining liabilities has the opposite effect. The drop in M0 in the third quarter of 2015 was caused mainly by a decline in the Bank’s foreign assets which, in turn, was due primarily to foreign cur-

These are negotiable securities issued by the Bank.

Graph 2 Development in the monetary base (annual percentage change) 1,200 1,000 800 600 400 200 0

Banks' demand deposits (current account)

Monetary base (M0)

Banknotes issued

rency sales to the commercial banks. A net contraction in the Bank’s other liabilities, which reflected transactions in connection with a court settlement of a claim between two international parties, exerted an expansionary effect on M0. These transactions were concluded in June and July with earmarked funds that were not part of the Bank’s foreign assets.

of declines in both residents’ demand deposits (NAf.45.6 million) and currency in circulation (NAf.9.0 million). In contrast, the near money component increased by NAf.37.9 million (0.9%), due entirely to an increase in time deposits. The annual growth rate of M1 dropped further to 0.2% in the September 2015 quarter, from 1.2% in June 2015 (See Table 15 in Appendix II.)

MONETARY AGGREGATES

FACTORS AFFECTING THE MONEY SUPPLY

Broad money (M2) contracted by NAf.16.7 million (-0.2%) during the September quarter of 2015 to NAf.7,923.6 million. The annual growth rate of M2 continued its downward trend since October 2014 and fell to 2.1% by the end of September 2015 (see Graph 3). The slowdown in monetary growth was accompanied by rather weak economic activity as well as subdued inflation. The contraction in the money supply during the third quarter of 2015 was driven by a drop of NAf.54.6 million (-1.5%) in the narrow money component (M1), the result

After having gained 0.3% in the June quarter of 2015, monetary growth halted in the third quarter of 2015, when broad money (M2) contracted by 0.2%. The contraction was the result of a reduction in the net foreign assets of the banking system dampened by an increase in net domestic assets. Following a contraction of NAf.164.3 million (-3.7%) in the second quarter of 2015, net foreign assets dropped by NAf.44.1 million (1.0%) during the third quarter of 2015 because some banks operating in Bonaire, which are branches of credit institutions established on Curaçao, drew down

on their foreign currency deposits with the Bank (see Table 16 in Appendix II for more details). The increase in net domestic assets (NAf.27.4 million) in the third quarter of 2015 was caused by a drawdown of deposits with the banking system by the governments of Curaao (NAf.22.3 million) and Sint Maarten (NAf.15.1 million). Furthermore, a rise in memorandum balance sheet items also contributed to the increase in net domestic assets. This rise was related to the release of the final part of a deposit with the Bank which had been provided as a security with the court in connection with the mentioned claim between two international parties. These expansionary effects were mitigated by a drop of NAf.61.7 million in lending to the private sector during the September quarter of 2015 due mostly to declines in loans (NAf.15.1 million) and investments (NAf.38.8 million).

gages (-1.0%) and business loans (-0.1%), mitigated by a 1.0% increase in consumer loans. In Curaรงao, total loans extended contracted by 0.8% during the third quarter of 2015, resulting from declines in business loans (-2.1%) and mortgages (-1.0%) mitigated by a 1.4% increase in consumer loans. In Sint Maarten, the amount of private sector loans outstanding increased by 1.4% in the third quarter of 2015 due to an expansion of 5.6% in business loans. Outstanding mortgages dropped by 0.8% while consumer loans remained unchanged. On an annual basis, total loans contracted by 1.2%, the result of a drop in Curaรงao (-1.7%) and an expansion in Sint Maarten (0.2%). The development in credit extension to the private sector reflects a combination of stricter credit allocation policies by the commercial banks and weaker demand for loans, particularly in Curaรงao.

The decline in the loan component of net credit extension to the private sector (-0.3%) resulted from declines in mortGraph 3 Development in the monetary aggregates (annual percentage change) 15%

10%

-5%

-10%

Money supply (M2)

Money (M1)

Near money

DEVELOPMENTS IN DOMESTIC INTEREST RATES When setting the rates offered on CDs during the bi-weekly auctions, the Bank takes into account the developments in the international financial markets. The benchmark one-month US dollar libor rate8 increased by only 1 basis point during the third quarter of 2015 to 0.20% at the end of September 2015. However, to make the CDs more attractive for the banks, the Bank has been offering a premium on the benchmark rates since May 2014. Consequently, the maximum rate offered on a 1-month CD increased from 0.29% at the

Treasury Agency (DSTA).9 The average effective yield on 5-year government bonds dropped marginally, from 0.10% at the end of June to 0.09% at the end of September 2015. Moreover, the yield on 12-month treasury bills dropped from -0.22% at the end of 2015’s second quarter to -0.24% at the end of the third quarter of 2015. (A detailed overview is provided in Table 17 in Appendix II.)

end of June 2015 to 0.33% at the end of September 2015. The commercial banks’ deposit and lending rates rose slightly during the September quarter of 2015. The weighted average interest rate offered on a 12-month time deposit increased from 2.1% in June 2015 to 2.2% at the end of September 2015, while the average rate on passbook savings rose from 1.2% to 1.3%. Meanwhile, with respect to commercial banks’ lending rates, the weighted average mortgage rate remained stable at 6.7%. However, the weighted average rate on time loans increased to 7.3% at the end of September 2015, up from 7.2% at the end of June 2015. Changes in the yields on government paper are determined by the developments in the Dutch capital market due to the standing subscription by the Dutch State

As part of the debt relief program, the Dutch government agreed to subscribe on all new loans issued by the governments of Curaçao and Sint Maarten at rates prevailing in the Dutch capital market during the period that financial supervision by the Kingdom is in effect. 9

The London interbank offered rate, the main gauge of interbank lending. 8

APPENDIX II Table 14 The monetary base and its sources (in millions NAf.) Change 2015-II

2015-III

Amount

Percentage

429.3

416.9

-12.4

-2.9

384.5

391.1

6.6

1.7

813.8

808.0

-5.8

-0.7

3,455.1

3,369.1

-86.0

-2.5

94.9

107.2

12.3

12.9

0.2

0.0

-0.1

-75.8

414.7

412.1

-2.6

-0.6

124.2

125.7

1.5

1.2

1,435.7

1,463.9

28.2

2.0

1,264.5

1,302.2

37.7

0.0

Government deposits

500.2

504.6

14.4

0.9

Foreign liabilities

428.5

384.7

-43.8

-10.2

Other liabilities

103.6

86.2

-17.3

-16.7

Capital and reserves

807.2

766.7

-40.5

-5.0

Currency in circulation Banks' demand deposits (current account)

Monetary base (M0)

Central bank assets Foreign assets (including gold) Claims on deposit money banks Claims on the government Claims on government agencies and institutions Fixed and other assets

less: Central bank remaining liabilities Private sector deposits, of which: Time deposits commercial banks

Table 15 Monetary aggregates (quarterly changes, in millions NAf.) 2015-I

2015-II

2015-III

Amount

127.3

1.6

27.1

0.3

-16.7

-0.2

83.4

2.3

-53.4

-1.4

-54.6

-1.5

-12.3

-3.5

6.6

1.9

-9.0

-2.6

Total demand deposits, of which:

95.8

2.9

-59.9

-1.8

-45.6

-1.4

Netherlands Antillean guilders

62.8

2.6

-55.6

-2.3

-9.9

-0.4

Foreign currency

33.0

3.7

-4.3

-0.5

-35.7

-3.9

Near money

43.9

1.1

80.5

1.9

37.9

0.9

8.8

0.4

73.2

3.4

53.1

2.4

35.1

1.8

7.3

0.4

-15.2

-0.7

Money supply (M2)

Money (M1) Coins & notes with the public

Time deposits Savings

Table 16 Monetary survey (in millions NAf.) 2014-III

2014-IV

2015-I

2015-II

2015-III

Money supply (M2)

7,757.3

7,785.9

7,913.2

7,940.3

7,923.6

Money (M1)

3,611.8

3,644.4

3,727.9

3,674.5

3,619.9

319.6

351.3

338.9

345.5

336.5

Total demand deposits, of which:

3,292.3

3,293.2

3,388.9

3,329.0

3,283.4

Netherlands Antillean guilders

2,434.8

2,408.1

2,470.9

2,415.3

2,405.4

857.4

885.1

918.1

913.7

878.0

Near money

4,145.4

4,141.5

4,185.4

4,265.8

4,303.7

Time deposits

2,150.0

2,139.7

2,148.5

2,221.6

2,274.8

Savings

1,995.5

2,001.8

2,036.9

2,044.2

2,029.0

3,653.4

3,744.2

3,520.1

3,711.5

3,738.9

-480.8

-428.8

-761.0

-658.2

-620.9

-74.1

-77.4

-69.0

-73.1

-73.3

Curacao

-285.5

-253.6

-564.0

-495.6

-473.3

Sint Maarten

-121.2

-97.9

-127.9

-89.4

-74.3

Private sector

6,131.7

6,148.3

6,200.2

6,160.6

6,098.9

Memorandum items

-1,997.4

-1,975.2

-1,919.1

-1,790.9

-1,739.1

Net foreign assets

4,103.9

4,041.6

4,393.1

4,228.8

4,184.7

Central bank

2,917.2

2,921.1

3,278.1

3,056.7

3,032.4

Commercial banks

1,061.3

995.3

989.7

1,154.2

1,152.3

Coins & notes with the public

Foreign currency

Factors affecting the money supply

Net domestic assets Government sector Former central government

Table 16 Monetary survey (in millions NAf.) continued... 2014-III

2014-IV

2015-I

2015-II

2015-III

Government loans by commercial banks

0.1

0.0

0.2

Government of Curaรงao

0.0

0.2

Government of Sint Maarten

0.1

0.0

Private sector loans Curaรงao

4,086.1

4,034.9

4,035.4

4,050.1

4,015.9

Mortgages

1,861.3

1,870.5

1,849.1

1,869.0

1,849.4

880.0

881.4

870.4

875.8

888.0

Business loans

1,344.7

1,283.0

1,315.8

1,305.3

1,278.5

Private sector loans Sint Maarten

1,405.9

1,422.7

1,419.7

1,390.2

1,409.3

Mortgages

658.2

662.5

666.5

656.8

651.5

Consumer loans

307.3

302.9

296.5

296.1

296.0

Business loans

440.4

457.3

456.7

437.3

461.9

Consumer loans

Table 17 Developments in domestic interest rates (in percentage) 2014-III

2014-IV

2015-I

2015-II

2015-III

1.0

0.20

0.25

0.29

0.33

Passbook savings

1.2

1.3

Time deposits (12-month)

2.0

1.8

1.9

2.1

2.2

Mortgages

6.6

6.7

6.6

6.7

Time loans

7.6

6.8

6.5

7.2

7.3

Government bonds (5-year effective yield)

0.28

0.13

-0.04

0.10

0.09

Treasury bills (12-month)

0.04

0.02

-0.19

-0.22

-0.24

Central bank Pledging rate Maximum CD rate (1 month)

Commercial bank borrowing rates

Commercial bank lending rates

Government securities

V COMMERCIAL BANKING SECTOR DEVELOPMENTS* BALANCE SHEET AND INCOME STATEMENT TThe total assets of the commercial banks decreased by 5.6% at the end of the third quarter of 2015 compared to the third quarter of 2014, reaching NAf.15.5 billion. The contraction of the aggregate balance sheet of the commercial banks resulted primarily from decreases in currency and deposits (-15.3%) and investments (-9.7%). Non-interest-bearing cash (-38.3%) contributed to the decrease in currency and deposits, offset in part by an expansion in interest-bearing cash (6.8%). The decline in investments was caused by a drop in both debt securities (-7.9%) and shares & other equity (-14.7%). Furthermore, a decrease in loans to nonfinancial corporations (-2.1%) was the primary cause of the decline in loans (-0.2%), offset mainly by an expansion in other loans (42.6%). These contractions were mitigated primarily by an expansion in other assets (20.2%). (See Table 18 in Appendix III for a more detailed look at the commercial banksâ&#x20AC;&#x2122; aggregate balance sheet.) The total debt of the commercial banks declined by 6.0% from the third quarter of

Pursuant to Article 28 of the National Ordinance on the Supervision of Banking and Credit Institutions (PB 1994, no. 4), the CBCS executed, under the authority granted to it, an emergency measure with regard to an institution as of December 2013. As a result, the sector data should be interpreted with some reservation. *

2014 to the third quarter of 2015, with a decrease in currency and deposits (-7.3%) exceeding increases in total borrowings (110.5%) and other liabilities (19.3%). The decrease in currency and deposits can be attributed entirely to the drop in demand deposits (-16.0%), while savings (1.3%) and time deposits (5.6%) expanded. As a result, the share of interest-bearing deposits to total deposits increased, putting pressure on the commercial banksâ&#x20AC;&#x2122; efforts to preserve their net interest margin. Last, capital and reserves declined by 2.3% with the capital base (-1.9%) the main contributor to this drop. The commercial banks reported a total gross income (i.e., net interest income plus noninterest income) of NAf.670.6 million in the third quarter of 2015, a 7.0% decrease compared to the third quarter of 2014. Decreases in both interest income (-5.1%) and noninterest income (-5.8%), combined with an increase in interest expenses (8.4%), contributed to the decline in gross income. In addition, noninterest expenses and provisions declined by 5.2% and 6.8%, respectively, but were not enough to offset the decrease in gross income. The decline in noninterest expenses can be explained in particular by a decrease in salaries & other employee expenses (-8.1%). Furthermore, extraordinary items decreased from NAf.8.9 million at the end of the third quarter of 2014 to NAf.-27.9 million at the end of the third quarter of 2015, resulting in a

decrease of 38.2% in the net income after tax. Last, the dividends payable remained equal. As a result, retained earnings totaled NAf.55.7 million in the third quarter of 2015, a 52.2% decrease compared to the third quarter of 2014. (More details are provided in Table 19 in Appendix III.)

FINANCIAL SOUNDNESS INDICATORS The Bank uses financial soundness indicators (FSIs) to support macroprudential analysis, which assesses the strengths and vulnerabilities of the banking sector. This monitoring task is part of the Bankâ&#x20AC;&#x2122;s continuing efforts to proactively undertake preemptive measures to structurally enhance the resilience of the financial system and its institutions against shocks, thus promoting growth and macroeconomic stability. Ensuring financial stability and calling upon a macroprudential strategy

involves integration with traditional microprudential supervision of institutions and monetary policy. An overview of financial stability in the commercial banking sector is represented in a cobweb, a snapshot of the components analyzed in the next section (see Graph 3). Movements away from the centre of the diagram represent an increase in financial stability risks, while movements towards the centre of the diagram represent a reduction in risks. The cobweb is calibrated using international benchmarking, supervisory standards, and trend analysis. The risk in earnings & profitability increased in the third quarter of 2015 compared to 2014â&#x20AC;&#x2122;s third quarter, while the risk in asset quality decreased. Capital adequacy, liquidity & funding, and sensitivity to market risk remained stable. This overview is complemented by the aggregate balance sheet, aggregate income

Graph 3 Financial stability cobweb of commercial banking sector

Asset Quality

Capital Adequacy

Sensitivity to Market Risk

Earnings & Pro tability

2013Q 3

Liquidity & Funding

2014Q 3

2015Q 3

statement, and financial soundness indicators10 (Tables 18-20 in Appendix III.) As can be seen from Table 19, more than half of the indicators outperformed the four-year average.

CAPITAL ADEQUACY Capital adequacy and availability ultimately determines the robustness of financial institutions to withstand shocks to their balance sheets. Capital provides not only a cushion for losses, but also a buffer for deposit insurance, while controlling excessive risk-taking by banks. The capital adequacy ratio (i.e., tier-1 and tier-2 capital to risk-weighted assets) reached 13.5% at the end of the third quarter of 2015, a decrease of 50 basis points compared to

the third quarter of 2014. The capital adequacy ratio slightly underperformed the four-year average, indicating a downward trend in the capital stock of the commercial banks. However, the capital adequacy ratio is still well above the benchmark of 8% under the Basel II agreements and the Bankâ&#x20AC;&#x2122;s benchmark of 10.5% (see Graph 4). The financial leverage ratio (i.e., tier-1 and tier-2 capital to total assets) increased by 10 basis points, reaching 8.9% at the end of the third quarter of 2015. Last, the NPL11 (net of provisions) to capital ratio decreased from 49% at the end of the third quarter of 2014 to 45% at the end of the third quarter of 2015, equal to the 4-year average. This level reflects a significant exposure of the banksâ&#x20AC;&#x2122; capital to credit risk and underscores the importance of banks increasing their capacity to withstand loss-

Graph 4 Trend analysis of the capital adequacy ratio

16%

13%

10%

7% 2012-III

7% 2013-I

2013-III

2014-I

2014-III

Capital Adequacy Ratio

Quarter to quarter

Basel II

Yearly moving average

All indicators for the commercial banks are compiled on a consolidated basis and in accordance with the IMF guidelines and principles. They include both the core and the encouraged set of indicators defined by the IMF.

2015-I

2015-III

CBCS benchmark

Nonperforming loans.

es from nonperforming loans. The Bank monitors this development closely since it indicates vulnerabilities in the capital adequacy arising from credit risk. Overall, the risk in capital adequacy remained stable in the third quarter of 2015 compared to the previous years.

ASSET QUALITY The banks’ exposure to credit risk is also reflected in the NPL to total gross loans ratio. This ratio decreased from 11.5% at the end of the third quarter of 2014 to 10.9% at the end of the third quarter of 2015, indicating an improvement of the asset quality in the loan portfolio of the commercial banks. In addition, the provisions to NPL ratio of the banks increased by 4.1 percentage points, reaching 38% at the end of the third quarter of 2015, outperforming the four-year average. The increase in this ratio indicates that the banks are starting to abandon their reserved attitude towards precautionary measures to cover their credit risk, increasing their ability to withstand possible macroeconomic shocks. The share of foreign currency loans in gross loans remained stable at 45% at the end of the third quarter of 2015. Furthermore, the ratio of foreign currency-denominated liabilities to total liabilities decreased by 3.8 percentage points to 53% at the end of the third quarter of 2015. However, a level above 50% still underscores the banks’ high reliance on foreign currency. Last, the large exposures of loans, leases, and advances to capital ratio decreased from 358% at the end of the third quarter of 2014 to 297% at the end of the third quarter of 2015. The Bank monitors this ratio closely since it also indicates vulnerabilities arising from concentration risk. In con-

clusion, the risk in asset quality decreased in the third quarter of 2015 compared to 2014.

EARNINGS & PROFITABILITY The efficiency of the banking sector in using its assets deteriorated, with the return on assets ratio reaching 1.2% at the end of the third quarter of 2015, 50 basis points lower than in the third quarter of 2014. The deposit takers’ efficiency in using their capital (i.e., return on equity ratio) followed a similar trend, decreasing significantly by 5.6 percentage points to 13.4% at the end of the third quarter of 2015. The spread between lending and deposit rates decreased slightly by 20 basis points to 6.2% at the end of the third quarter of 2015. With respect to efficiency, the ratio of personnel expenses to noninterest expenses decreased by 1.7 percentage points to 54% at the end of the third quarter in 2015, slightly below the four-year average. Furthermore, the banks were not able to maintain their efficiency in the use of their resources with regard to operational expenses as the share of noninterest expenses in gross income increased by 1.3 percentage points to 71% at the end of the third quarter of 2015. This decrease in the banks’ efficiency will put pressure on their profitability. Last, the share of net interest earnings (i.e., interest earned less interest expenses) in gross income decreased by 40 basis points to 65% at the end of the third quarter of 2015, equal to the four-year average. The value of this ratio indicates that the banks maintained their diversification among sources of income, making it easier to withstand shocks. In conclusion, the risk in earnings & profitability increased in the third quarter of 2015 compared to 2014.

LIQUIDITY & FUNDING

SENSITIVITY TO MARKET RISK

The ample liquidity of the banking sector showed a slight decrease in the third quarter of 2015, but the sector maintained its ability to withstand shocks to its balance sheets. The liquid assets to total assets ratio decreased from 34% at the end of the third quarter of 2014 to 31% at the end of the third quarter of 2015, still outperforming the four-year average. This level reflects the banks’ ability to meet expected and unexpected demands for cash. Also the liquid assets to short-term liabilities ratio decreased, by 2.4 percentage points to reach 42% at the end of the third quarter of 2015, indicating an increase in the mismatch of the short-term assets and liabilities of the banks. Last, the total deposits to total loans ratio decreased by 11.6 percentage points to 140% at the end of the third quarter of 2015. This decline is no cause for concern because levels above 100% indicate a high degree of stable funding (i.e., customer deposits) to illiquid assets (i.e., loans). In addition, the value of this indicator, which is almost equal to the four-year average, and its long-term trend point to stable depositor and investor confidence in the long-term viability of the banking sector. Overall, the risk in liquidity & funding remained stable in the third quarter of 2015 compared to 2014.

The net interest margin (i.e., the difference between the gross earning assets yield and the break- even yield) increased in the third quarter of 2015 by 100 basis points, reaching a level of 5.8%. However, the mismatch between foreign currency asset and liability positions at the commercial banks deteriorated, with the net open position in foreign exchange to capital ratio increasing from 52% at the end of the third quarter of 2014 to 64% at the end of the third quarter of 2015, below the four-year average. This development indicates an increase in the banks’ sensitivity to market risk, augmenting their exposure to exchange rate risk. Furthermore, the total foreign exposure relative to the banks’ capital position (i.e., the net foreign assets to total capital ratio) increased by 18.9 percentage points to 104% at the end of the third quarter of 2015, putting pressure on the banks’ ability to withstand shocks from foreign markets. Overall, the sensitivity to market risk remained stable in 2015 compared to the previous years.

APPENDIX III Table 18 Aggregate balance sheet of the commercial banks (in millions NAf.) 2014-III

2014-IV

2015-I

2015-II

2015-III

400.4

395.7

390.1

382.8

381.7

15,964.1

14,919.5

15,189.9

15,378.3

15,066.2

Assets I

Nonfinancial assets

Financial assets (III through VII)

III

Currency and deposits

5,440.3

4,262.9

4,523.5

4,640.1

4,605.7

(i) Non-interest-bearing cash

2,666.9

1,645.3

1,785.4

1,774.2

1,644.4

(ii) Interest-bearing cash

2,773.5

2,617.6

2,738.0

2,865.9

2,961.2

Loans

8,861.0

8,901.0

8,859.8

8,859.5

8,844.6

0.0

1.4

0.8

0.1

0.0

0.2

(iv) Agencies and institutions

67.0

85.2

82.0

76.1

76.5

(v) Other financial corporations

15.3

15.5

15.3

14.9

(vi) Nonfinancial corporations

4,838.0

4,783.5

4,802.8

4,788.1

4,736.1

(vii) Households

3,739.5

3,736.6

3,681.6

3,698.1

3,730.0

201.2

280.2

276.6

281.1

286.8

1,281.9

1,315.2

1,310.7

1,351.5

1,158.2

(i) Debt securities

949.5

959.4

948.7

926.3

874.5

(ii) Shares and other equity

332.4

355.8

362.1

425.2

283.7

83.2

149.5

181.8

137.9

100.2

297.6

291.0

314.1

389.4

357.6

16,364.5

15,315.2

15,580.1

15,761.2

15,447.9

(i) Interbank loans (ii) Central bank (iii) General government

(viii) Other V

Investments

Investments in unconsolidated subsidiaries and affiliates

VII

Other assets

VIII

Total assets (= I + II)

Table 18 Aggregate balance sheet of the commercial banks (in millions NAf.) continued... 2014-III

2014-IV

2015-I

2015-II

2015-III

14,102.6

13,040.9

13,186.1

13,360.9

13,079.8

(i) Demand deposits

7,608.7

6,374.3

6,455.9

6,595.6

6,391.3

(ii) Savings deposits

3,950.8

3,966.4

4,002.6

4,048.6

4,003.0

(iii) Time deposits

2,543.1

2,700.1

2,727.6

2,716.7

2,685.5

Total borrowings

43.4

56.4

108.6

116.9

91.4

Other liabilities

502.5

553.0

614.0

609.6

599.8

XII

Total debt (= IX + X + XI)

14,648.5

13,650.3

13,908.8

14,087.3

13,771.0

XIII

Capital and reserves

1,716.0

1,664.9

1,671.2

1,673.8

1,676.9

(i) Capital

1,398.0

1,347.4

1,351.3

1,369.5

1,371.5

13.6

11.4

12.4

12.1

12.9

304.3

306.1

307.5

292.2

292.5

16,364.5

15,315.2

15,580.1

15,761.2

15,447.9

Liabilities IX

Currency and deposits

(ii) Minority interest (iii) Subordinated debentures (iv) General provisions

XIV

Total liabilities and capital (= XII + XIII)

Table19 Aggregate income statement of the commercial banks (cumulative quarterly amounts; in millions NAf.) 2014-III

2014-IV

2015-I

2015-II

2015-III

Interest income

556.8

677.2

180.2

356.4

528.6

Interest expense

88.2

109.4

31.8

63.3

95.6

III

Net interest income (= I minus II)

468.6

567.8

148.5

293.1

433.0

Noninterest income

252.2

325.3

88.3

166.7

237.6

Gross income (= III + IV)

720.8

893.1

236.8

459.8

670.6

Noninterest expenses

500.6

621.0

162.4

320.2

474.4

280.0

360.9

85.8

171.9

257.2

71.7

90.9

24.9

48.4

67.5

148.9

169.2

51.7

99.9

149.8

37.5

61.8

8.8

25.0

34.9

182.8

210.3

65.7

114.5

161.3

8.9

15.7

-9.1

-11.3

-27.9

32.2

33.4

12.6

25.1

34.8

159.6

192.6

43.9

78.1

98.6

42.8

67.3

6.1

24.5

42.8

116.7

125.3

37.8

53.7

55.7

(i) Salaries & other employee expenses (ii) Occupancy expenses (iii) Other operating expenses VII

Provisions Net income (before extraordinary

VIII

items and taxes) (= V minus (VI+ VII))

Extraordinary items

Income tax

XII

XIII

Net income after tax (= VIII minus (IX + X)) Dividends payable Retained earnings (= XI minus XII)

Table 20 Financial soundness indicators (in %; end of period) 2014-III

2014-IV

2015-I

2015-II

2015-III

4-Yr Avg.*

Capital adequacy ratio

14.0%

14.6%

13.8%

13.0%

13.5%

14.2%

Core capital adequacy ratio

13.5%

12.8%

13.2%

13.0%

13.1%

13.0%

Capital to assets

8.8%

9.2%

8.9%

8.8%

8.9%

9.8%

NPL net of provisions to capital

49%

42%

51%

45%

11.5%

11.0%

10.6%

12.1%

10.9%

11.1%

34%

39%

40%

38%

33%

45%

46%

45%

46%

57%

54%

53%

54%

358%

261%

289%

311%

297%

294%

Return on assets

1.7%

1.3%

1.2%

1.6%

Return on equity

19.1%

13.8%

15.4%

15.3%

13.4%

15.9%

65%

64%

63%

64%

65%

69%

70%

68%

70%

71%

67%

56%

58%

53%

54%

56%

6.4%

6.0%

6.2%

6.5%

Capital adequacy

Asset quality NPL to total gross loans Provisions to NPL Foreign currency-denominated loans to total loans Foreign currency-denominated liabilities to total liabilities Large exposures to capital Earnings & profitability

Interest margin to gross income Noninterest expenses** to gross income Personnel expenses to noninterest expenses** Spread between lending and deposit rates

Table 20 Financial soundness indicators (in %; end of period) continued... 2014-III

2014-IV

2015-I

2015-II

2015-III

4-Yr Avg.*

34%

27%

30%

31%

29%

44%

39%

40%

42%

38%

152%

140%

142%

143%

140%

143%

4.8%

4.7%

4.6%

5.8%

4.9%

52%

51%

52%

61%

64%

72%

85%

77%

93%

109%

104%

91%

Liquidity & funding Liquid assets to total assets Liquid assets to short-term liabilities Total deposits to total loans Sensitivity to market risk Net interest margin Net open position in foreign exchange to capital Net foreign assets to total capital *

4-year quarterly average

Noninterest expenses = operational expenses

Performed better than the 4-year quarterly average Performed worse than the 4-year quarterly average